How do your Québec Pension Plan contributions work for you?

In my last entry, I mentioned that in 2013, 12,1 billion $ was deducted from salaries as contributions to the Québec Pension Plan (QPP). That’s a lot of money! However, 11,7 billion $ was also paid in benefits that year.

When I wrote those figures, I thought that all workers who contribute to the Plan must be familiar with the various benefits the Plan provides. Wrong! A survey (French only) conducted by the Régie des rentes du Québec in 2012 showed that 46% of adult Quebeckers were unaware that they could receive a pension under the QPP. That’s a troubling finding, considering that most of us contribute to the Plan! It’s a little like paying for an insurance plan without knowing whether it covers your home, car or medications.

The QPP is based on the same principles as an insurance plan. It’s there to give workers who contribute to it basic financial security in retirement or in the event of disability or death.

In retirement 
Over 1,5 million retirees received a retirement pension in 2013. You, too, will be entitled to a retirement pension thanks to your contributions, and you can apply for one as of age 60. However, the amount will be reduced if you apply at that age. To receive the full amount, you’ll have to wait until age 65 to apply.

Is it better to apply at 60, 65 or even later? Good question! Our actuaries have put together a summary of factors to consider that could help you decide.

And if you become disabled while you are receiving a retirement pension, you could also be entitled to an additional amount for disability.

In the event of death
Obviously, your contributions won’t protect you personally in the event of your death. But they do protect your spouse and your children under age 18. In the event of death, a death benefit of 2 500 $ is payable to the person who paid the funeral expenses or to the heirs. In addition, your spouse could be entitled to a surviving spouse’s pension, and an orphan’s pension could be paid for your children under age 18.

In the event of disability
Life is unpredictable, and illness can strike anyone before retirement. If it happens to you and your illness or disability is not related to an accident at work or on the road, you could be entitled to a disability pension. If you have children under age 18, you could also be entitled to a pension for a disabled person’s child.

But there’s one thing you should know—not everyone who claims to be disabled is recognized as such. To receive a disability pension under the Plan, you must be under age 65 and have a serious and permanent disability recognized by the Régie's medical advisors.

As you can see, your QPP contributions play a crucial role in protecting you and your loved ones in retirement or in the event of death or disability.

A final thought: since you contribute a percentage of your income to the Plan, be sure to report all of your employment earnings on your income tax return. To check your earnings, consult your Statement of Participation online.

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How well do you know the Québec Pension Plan?

It’s Thursday, which means it’s payday! When you get your paystub (or consult it online, the ecological way), the first thing you probably do is look to see how much was deposited in your account. That amount is your net salary after deductions. You likely know that an amount is deducted for the Québec Pension Plan, but what do you really know about the plan?

First, some history.
From the time the first colonists arrived until the 19th century, the responsibility for caring for the elderly fell to family or the Church. By the 1950s, Québec’s social policy was a mosaic of measures that were introduced at different times and whose purposes often contradicted one another.

Confronted with the vulnerability of the elderly and the shortcomings in the administration of private pension plans, the government had no choice but to intervene in the complex field of retirement pensions. In the mid-1960s, the Jean Lesage government created the Québec Pension Plan along with the agency that administers it, the Régie des rentes du Québec. It was also at this time that the Caisse de dépôt et placement du Québec came into being.

Based on the principle of an insurance plan, the Québec Pension Plan’s objective is to offer financial security to workers who contribute to the Plan. If you are 18 or over and make more than 3 500 $ a year, you must contribute. In return, the plan offers not only basic financial security in retirement to you, but also financial security to your loved ones in the case of your death or disability.

How is the Plan funded? Without going into the actuarial nitty-gritty, let’s just say that funding is based on contributions by workers and employers, which are used to pay benefits and make up a reserve. In 2014, the contribution rate is 10,35%. Since your employer pays half, an amount equivalent to 5,175% is deducted from each of your pays (to a maximum of 2 535,75 $/year). If you are a self-employed worker, you must pay both the employee and the employer portions.

You think there will be nothing left when you retire? You haven’t heard? THE PLAN IS HERE TO STAY. Every three years, the Plan’s health is checked. According to the actuarial valuation of the Plan as at 31 December 2012, funding is ensured until 2062.

Yes, the Plan is under pressure due to the increasing number of retirees compared to the number of workers. Hold on though, the Plan has a reserve of over 45,9 billion $. The reserve, which is managed by the Caisse de dépôt et placement du Québec, will come in handy when the amounts being paid to beneficiaries outweigh the contributions coming in.

To make it clearer, here’s a glimpse of the Plan.

I’ll give you a general picture of Plan coverage in my next blog entry. Coming soon…